According to the WSJ, Trump plans to issue an executive order today directing federal agencies to initiate regulations that require HC payers and providers to reveal the details of their pricing contracts. As expected, industry groups, including both payors and providers, are pushing back claiming transparency on discounts will hurt competition and ultimately cause costs to go up and the article notes that it is “unclear how aggressive the order will be because of the pushback from industry”. At the end of the day the devil will be in the details here in terms of what the providers/plans are forced to disclose and the ability of members to use it to make better/lower cost consumption decisions over time.
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This Wednesday (06/26/19) Warren, O’Rourke and Booker will face off at the first 2020 democratic primary debate along with seven others, followed by Biden, Sanders, Harris, Buttigieg and six others at a second debate the following night – see more on page 2. Healthcare will undoubtably be one of the key topics in the upcoming debates as the candidates split on whether they want a system that builds on the existing employer-based system or replace it entirely with a single-payer structure – see page 5 for the stance of the current lead Democratic candidates. While the recent polls have been relatively stable, look for potential volatility into the first Democratic debates as Biden is expected to be the primary target of his fellow Democrat candidates – given the current solid lead and his more moderate position on certain topics, including healthcare. As we highlighted in our previous work and illustrated on page 8, history would argue for volatility in the polls before all is said and done despite Biden’s large lead. That said we continue to see little chance of significant change, instead the concern is simply the 12-18 month timeline of uncertainty before elections.
Wolfe Research Senior Healthcare Analyst, Justin Lake, hosted a webcast to discuss updated thoughts on CVS, including growth from new strategic initiatives, NT impact from identified transient challenges, underlying business grwoth implied in guidance, and remaining questions.
At Investor Day CVS laid out a path forward for investors to understand key components of the business into 2020 and beyond. More importantly mgmt. gave detailed EPS guidance out to 2022, driven by savings from significant new cost cutting initiatives, synergies with AET, and business transformation - these are huge drivers of future earnings growth adding $3B+ to OI thru 2022. We will host a webcast on Thur 6/20 at 11am ET to go over – slides start on pg. 2 of this note and invite should be in your inbox early tomorrow morning.
In June Individual Med Adv enrollment increased 7.5% y/y and Group Med Adv enrollment increased 8.5% y/y, producing total y/y Med Adv growth of 7.7% – 8.4% ex. MN market which declined y/y due to the ongoing cost plan conversion. ~65.0% of total Med Adv enrollment of 22.5M lives were in our covered co’s vs 61.1% of 20.9M lives a year ago. See Page 2 for data by plan and email us for tracking spreadsheet.
HHS’s proposed rule to eliminate safe harbor protection for drug rebates from manufacturers to PBMs for Part D / Managed Medicaid and replace them w/ POS discounts has reached the White House's Office of Management and Budget yesterday (06/10) for final review.
Since entering the race on April 25, Biden has rapidly solidified his status as the front-runner for the 2020 Democratic Presidential nomination, with a lead of 16.8 points (vs. 18.4p 1-week ago / 17p 2-weeks ago) according to the RCP’s national polls – see slide 3. There was no noticeable change in the polls over the past two weeks with Sanders remaining a distant second and Warren / Harris sitting in third / fourth. While the polls have been relatively stable, look for potential volatility into the first Democratic debates scheduled for June 26-27 and July 30-31, respectively – we discuss the change in the debate rules this year on page 2.
The Kaiser Family Foundation recently published two interesting analyses on how the Medicare Advantage landscape has evolved over time from different angles. One historical analysis of 2010-2016 data is particularly interesting, illustrating that seniors new to Med Adv are still choosing MA at a rate below the overall industry penetration. While increasing materially over this period the analysis shows only 29% of seniors new to Medicare choose MA plans in 2016 vs. 31% industry penetration. This is counter-intuitive to many given one would expect younger seniors to be more familiar with managed care in general and therefore more open to the benefits of Med Adv. However, we would note that there are a couple of reasons why this might be the case: (1) the only time a senior can be assured of getting Med Supp w/o underwriting and at best price is when they age in, likely leaving more seniors choosing Med Supp right out of the gate and (2) it is possible that seniors
As we highlighted in our earlier note, CVS provided 2020 EPS target of at least $7.00 which was ~in-line w/ WR’s est. of $7.04 but ~2% below Consensus of $7.20. In addition, mgmt provided EPS growth target of MSD for 2021, in-line w/ our ~4% growth est. but below Consensus of ~7%, as well as LT growth target of LDD for 2022 and beyond – the 2022 target includes “modest share repurchases”. While today’s guide alleviated some concerns around growth in the business near-term, we got many questions from investors around the core growth implied in guidance as there are a lot of moving parts with limited visibility, as well as aggressive cost savings / transformational benefits assumed in guidance – we note that these savings/benefits alone generate OI CARG of ~6.5% over the next three years. (discussed more below). We plan to do more work here on implied core growth in guidance over the next several days as we expect questions here may have been a factor in stock trading inline w/ S&P today despite increased NT visibility on #s.
he 2020 target is ~in-line w/ WR’s est. of $7.04 and ~2% lower than Consensus of $7.20, representing at least 2.5% growth vs. the mid-point of 2019 initial guide ($6.75-$6.90). While we expect mgmt to provide additional details of moving parts ex-core in 2020, the slides show that CVS is now expected to see ~$800M of synergies in 2020 ($475M tailwind vs. 2019; WR had $400M tailwind) and net savings of ~$500M from the new cost saving initiatives in 2020 – we have not included the new cost reduction initiatives in our base case. In addition, CVS confirmed in the slides that generics, Omnicare, and rebate guarantees will be tailwinds in 2020 – see page 3-4. As we noted in our preview email and the bridge in page 2, our $7.04 EPS assumed flat core growth in the business but CVS provided significantly greater synergies and cost initiation savings (~$575M combined) than in our earnings bridge - indicating that headwinds will be larger than we est. or core business is more negative – again lo
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